US stock rally falters near records as Trump platform assessed

[NEW YORK] The rally in US stocks faltered after the Dow Jones Industrial Average rose to an all-time high, as investors speculated gains sparked by assumptions for pro-business policies under Donald Trump went too far too quickly.

The Dow rose 136.11 points, or 0.7 per cent, to 18,725.70 in New York, taking it above its Aug 15 record. The S&P 500 Index advanced 0.2 per cent to 2,168, briefly climbing within 0.4 per cent of a record. The broader index pared an advance that reached 0.9 per cent as technology shares slumped.

"Day two will digest what went on in day one," said John Manley, who helps oversee about US$233 billion as chief equity strategist for Wells Fargo Funds Management in New York. "The election is over. That was a big piece of uncertainty that hung over the market. From a business point of view, this means less regulation, and less regulation is viewed as being more growth, which should be viewed as a positive."

Banks surged 3 per cent, pushing the two-day advance toward 8 per cent, as JPMorgan Chase & Co jumped 4.9 per cent and Goldman Sachs Group Inc climbed 2.9 per cent. Drugmakers advanced, led by Pfizer Inc's 2.9 per cent rally. Industrial shares rose 1.6 per cent, with Boeing Co adding 2.7 per cent. Utilities, real estate investment trusts and consumer staples tumbled. Rising bond yields make their high relative dividend payouts less attractive.

Financial and health-care industries have paced the rally since Mr Trump's surprise win on Tuesday, surging on expectations that the president-elect and Republican-controlled Congress will roll back regulations and boost infrastructure spending. Mr Trump's promise to revive American infrastructure means commodities used to build everything from airports to bridges will benefit under his presidency, according to Goldman Sachs Group Inc.

"It's a relief rally over the certainty of the outcome of the election and after the conciliatory tone that Mr Trump took," said Nick Skiming, a fund manager at Jersey, Channel Islands-based Ashburton Ltd. His firm oversees US$10 billion. "There's hope that a new president can introduce reforms that will enable corporate America to move forward."

The CBOE Volatility Index fell 3.5 per cent on Thursday, set for its biggest two-day drop since June. The measure of market turbulence known as the VIX reached a four-month high on Friday. US stocks had been heavily hedged as volatility surged leading up to the vote on speculation a Trump win had the potential to rattle markets as he had pledged to clamp down on international trade deals, while adopting divisive rhetoric throughout his campaign.

In the 22 elections going back to 1928, the S&P 500 has fallen 15 times the day after polls close, for an average loss of 1.8 per cent. Stocks reversed course and moved higher over the next 12 months in nine of those instances, according to data compiled by Bloomberg.

With the election uncertainty out of the way, investors are also weighing prospects for the timing of the Federal Reserve's next rate increase. Odds for a December move have increased to 82 per cent from 78 per cent a week ago. A report today showed jobless claims declined from an almost three-month high ahead of the election.

Among shares moving on corporate news, Perrigo Co rose 4.5 per cent after saying it will review options including the sale of rights to the royalty stream from a multiple sclerosis drug. Shake Shack Inc stock jumped 9.6 per cent in after the burger chain raised its annual sales forecast.

MetLife Inc gained 1 per cent after announcing a plan to buy back US$3 billion in shares as the company prepares to spin off a capital-intensive US retail business. Kohl's Corp rallied 6.1 per cent after posting better-than-estimated earnings and boosting its stock repurchase program.

BLOOMBERG